BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 154


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          Date of Hearing:  May 27, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          154 (Ting) - As Amended May 20, 2015


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          |Policy       |Revenue and Taxation           |Vote:|6 - 0        |
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          Urgency:  Yes State Mandated Local Program:  NoReimbursable:  No


          SUMMARY:


          This bill makes omnibus conformity changes to the Revenue and  
          Taxation Code in two areas:


          1)Changes the state's general specified date of conformity to  
            federal income tax laws from January 1, 2009, to January 1,  
            2015, for taxable years beginning on or after January 1, 2015,  
            thereby generally conforming to many changes to federal income  
            tax law during that six-year period, but subject to certain  
            exceptions; and










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          2)Generally conforms the state's net operating loss rules to  
            federal income tax law, allowing corporations expecting a net  
            operating loss carryback to extend the time for payment of  
            taxes for the preceding taxable year.


          FISCAL EFFECT:


          1)Potentially significant GF costs to Franchise Tax Board (FTB)  
            to administer the changes to forms, procedures, and systems.


          2)The two provisions in this bill have offsetting revenue  
            impacts:


             a)   Estimated GF revenue increases of $15.2 million, $16.0  
               million, and $17.2 million in FY 2015-16, FY 2016-17, and  
               FY 2017-18, respectively, for the conforming changes  
               contained in provision 1 above; and


             b)   Estimated GF revenue decreases of $12.0 million, $8.0  
               million, and $3.0 million in FY 2015-16, FY 2016-17, and FY  
               2017-18, respectively, for the conforming changes contained  
               in provision 2 above.


            As a result, estimated net GF revenue impacts are increases of  
            $3.2 million, $8.0 million, and $14.2 million in FY 2015-16,  
            FY 2016-17, and FY 2017-18, respectively.


          COMMENTS:


          1)Purpose.  According to the author, this bill conforms state  
            tax law to federal tax law, easing tax preparation for  








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            taxpayers and administration for FTB.  This bill is intended  
            to narrow the differences between state and federal tax law,  
            and includes tax relief for members of the US armed forces,  
            businesses, and certain individual taxpayers.


            Proponents argue non-conformity is a leading cause for state  
            taxpayer error and noncompliance, citing an independent FTB  
            Taxpayers' Rights Advocate's 2014 report to the legislature.   
            Proponents further maintain the conformity in this bill will  
            reduce the number of adjustments and different methodologies  
            required for state tax returns, reducing penalties and  
            interest assessments.


          2)Of Harmony and Policy.  When changes are made to the federal  
            income tax law, state law does not automatically adopt those  
            changes.  Instead, legislation is required to conform, either  
            in the form of individual tax bills relating to specific  
            changes or omnibus "conformity" bills that conform to federal  
            law as of a certain date, subject to specific exceptions.


            In the 1980s and early 1990s, state conformity legislation was  
            relatively routine and enacted almost every year.  Since that  
            time, however, conformity legislation has become less  
            frequent, and occasionally more contentious, with the last  
            occurring in 2010.  Businesses generally prefer conformity to  
            federal tax laws because it reduces their state tax compliance  
            costs, and practitioners argue nonconformity increases  
            individual state tax reporting errors.  Conformity also  
            reduces administrative burdens for state agencies, allowing  
            them to rely on federal data, audits, case law, and  
            regulations to inform state actions.


            Conformity often has a significant impact on state revenue,  
            and as a result can be contentious.  Both the state and  
            federal governments use tax policy to influence taxpayer  








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            behavior through the use of credits, deductions, and  
            exemptions, and there may be instances where the policies  
            advocated at the state and federal levels do not align.  In  
            addition, certain federal policies may be advanced through  
            deficit spending, which the state cannot do.  The Legislature  
            may need to be mindful of certain fiscal effects that would  
            not otherwise create concern in the US Congress when  
            considering conformity legislation.








          Analysis Prepared by:Joel Tashjian / APPR. / (916)  
          319-2081